Fed chief stands firm on rate rise predictions
Federal Reserve Bank of New York president William Dudley said on Thursday the case for rate rises this year remained robust amid risks the economy could overheat, and warned that the new tax law could boost the US deficit over time.
If the economy continues to make progress on achieving the Fed’s job and inflation goals, “I will continue to advocate for gradually removing monetary policy accommodation”, Mr Dudley said in a speech given to a gathering of the Securities Industry and Financial Markets Association in New York.
The argument in favour of rate rises “remains strong,” he said. Inflation that is short of the Fed’s 2 per cent target “argues for patience,” he said, adding “I think that is more than offset by an outlook of above-trend growth, driven by accommodative monetary policy and financial conditions, as well as an increasingly expansionary fiscal policy.”
The central banker, who is set to retire in a few months, also serves as vice-chairman of the Fed’s interest-rate-setting Federal Open Market Committee. Mr Dudley was a consistent supporter of increasing short-term interest rates last year.
The Fed delivered three increases in 2017, taking its overnight target rate range to between 1.25 per cent and 1.5 per cent, and it pencilled in about three more increases for this year.
Mr Dudley said the Fed’s collective expectation for three rate rises in 2018 “doesn’t seem to be an unreasonable sort of starting point” for thinking about monetary policy, but what happens “depends on how the outlook evolves”. “Financial conditions today are easier than when we started to remove monetary policy accommodation,” Mr Dudley said.